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How to find the next 10x gem using DefiLlama?

2023-02-27 18:30

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Original author: Crypto KOL@thedefiedge

Translated by: daiwa, Doria, czgsws, 0x214, Noc

Want to find the next 10x project? You can easily do so using the free DefiLlama, which is a detailed step-by-step guide to finding "Gems" on your own in 2023 (including little-known features).

Find Your Own Alpha

If you continue to rely on others to obtain alpha, you will eventually be left holding the bag. Don't get stuck at the bottom of the food chain. Here, I will share some techniques for using DefiLlama.

The Liquidity Traction Effect of Public Chains

Imagine you are buying real estate, the first thing you will definitely do is to look at which first-tier popular cities are highly sought after. This is the attitude you should have when looking at each ecosystem. BNB was once popular, but any financial hotspot is constantly changing, and you need to participate in the chain where money is concentrated.

Public Chain TVL Growth

One simple metric is the TVL growth percentage.

1) Click on DeFi and select Chains.

2) View 7-day and 1-month metrics - you will find that only Arbitrum and Optimism are growing. This is not surprising to anyone, as we are currently in the ETH Layer 2 season.

Want to get more?

Personally, I prefer to choose the top 10 chains, but if you want to get more content, you can scroll down. Look for public chains with abnormal TVL growth below.

From the perspective of one month's growth, Canto, Cardano, Metis, and NEO are also good choices.

Stablecoin inflows. I have identified some chains with attractive Total Value Locked (TVL), but this does not necessarily indicate the full picture. An undervalued metric is stablecoin inflows - it shows new funds bridging into the ecosystem, which is the true growth.

Click Stables, select Chains.

Although Optimism has attractive total locked value, their stablecoin inflow is negative. Arbitrum has positive total locked value increment and stablecoin inflow, making it more attractive than Optimism. Please note that this trend may change with the release of Base.

Do not become the maximalist of chains. What I value the most is not the chain, but the profit. Restricting yourself to a single chain will limit your profit. I have a friend who missed out on a life-changing opportunity because he was an ETH maximalist. Come and go where the wind takes you.

Looking for Gems on Arbitrum. Many top dApps are multi-chain. If you want to find Gems, look for Arbitrum's exclusive products. Compared to native dApps that expand to the 7th chain, new native dApps have more profit potential. The economic model is also often better.

Looking at all the on-chain content, I talked about searching for excellent dApps on the popular chain Arbitrum. You can also categorize all chains and explore opportunities beyond Arbitrum. Click on DeFi, then click on overviews.

Set Filters (Screening)

1) Set the maximum and minimum values for TVL. I set it to be greater than 3 million US dollars and less than 25 million US dollars (or you can set it according to your preference).

2) Sort by the increase in TVL within 7 days.

After filtering, the list only includes some protocols that I am already familiar with, such as Mars Protocol, DeFi Kingdom, and Keep3r Network. Everything else is a potential research target for me.

Fork Protocol

If a protocol is innovative and popular, then it is equally possible to profit if another team forks it and brings it to a new chain.

OHM fork in late 2021 is a highly anticipated event, and DefiLlama can help you easily find several fork protocols.

How to choose forks?

GMX and Solidly's fork is performing well now.

The argument is: "GMX is doing well now. Let's see who will bring it to other chains."

1) Click on DeFi forks.

2) Click on GMX.

现在有哪些突出项目？

What are the outstanding projects now?

1) El Dorado, currently a strong project on BSC.

2) FTM derivatives. Mummy's TVL is $15 million. Lif3's current TVL is still low, and I may add it to the research list. Decentralized perpetual contracts are popular, but not all of them are GMX forks.

Using the "Recent" option

DefiLlama has a "Recent" option, which is very useful for finding new projects and seeing which projects are being built on-chain.

I usually search for protocols with TVL > 2 million USD to see what unique selling points these protocols have.

Revenue

In the Fees/Revenue dashboard, you can see the correlation between fees and revenue, which can tell us which protocols are making money. I will choose to view the revenue and market cap information, and create indicators such as P/E ratios. I will also pay attention to which protocols have potential for development.

Protocol Inflow

TVL itself may generate misleading information, as TVL heavily relies on the price of tokens. If the price of ETH doubles, the TVL of the protocol may sharply increase. An underestimated indicator is the protocol inflow. You can see funds flowing into Radiant Capital.

Investment Allocation of Venture Capitalists

This is simple - just look at what projects the venture capitalists are funding.

This is a potential narrative style that I see as a possibility for the future.

Compared to individual projects, I am more concerned about their patterns.

Although new Gems in the cryptocurrency industry have high potential for returns, they also come with more risks. Make sure your investment portfolio consists of ETH, stablecoins, low-risk assets, and medium-risk assets. My high-risk asset allocation is about 20%, with specific allocation to individual high-risk projects ranging from 2-5%.

Creating a Personal Trading System

DefiLlama is a part of a larger system I use to search for gems, including:

1) DeFiLama

2) Create personal opinion paper.

3) Observe the Smart Money wallet address.

4) Some encryption KOL Twitter accounts

5) Private channels & insider information/Telegram/Discords

6) Other tools (Arkham / Nansen / Token Terminal).

1) Search for potential Gems;

2) Let it pass through a specific evaluation framework;

3) Determine whether this is a good investment based on your investment portfolio/strategy, which can be referenced in another tweet.

Make a decision

1) Which chain do you want to choose - there may be some cost and technical difficulties in cross-chain asset transfer.

2) Risk level - the earlier the investment, the greater the risk.

3) Understand the reasons behind the potential project's TVL growth.

My Trading System Overview

1) Use DeFiLlama to try to find projects with potential behind them.

2) Research and attempt to understand what factors are driving the growth of potential momentum.

3) Ask yourself rhetorically, "How early did I learn about this project? Can this project continue to operate after I buy it?"

There are no recommended projects, please be aware of the risks.

I mentioned several projects in this article. However, please remember that they are all for educational purposes and I cannot guarantee any of them. This does not constitute investment advice.

"I'm not afraid of people who have used DeFi tools 10,000 times, but I'm afraid of those who have used DefiLlama 10,000 times." - Edgy Lee